13 March 2014

Renewables IPOs to 'struggle' as London market reaches 'saturation point'

Some of the latest attempts to list renewables vehicles on the London market will fail to get away, or raise as much capital as hoped, as investors warn that the supply of these products begins to outstrip demand.

After five renewables companies or funds listed on the London market in 2013, raising more than £1 billion ($1.7 billion) from investors, three more are planning to float vehicles in 2014 – John Laing, Ingenious and NextEnergy.

With two of the companies hoping to close their books on Tuesday, investors have told Environmental Finance that the reception for the offers has been lukewarm and there are fears that not all will prove successful.

The situation is being compounded because several other companies are understood to be talking to investors about potential renewables listings.

One asset manager said:  "There are several companies all trying to race through the gate and they can't all succeed – there's a limited amount of capital. Investors have taken the view they really would prefer five or six big companies, rather than 15 little ones. I don't think any of them are getting great traction."

One private equity investor said: "The market at the moment seems to be saturated, at least in the UK. I'm not sure if it's permanently saturated or just people taking a breather. Some people are saying don't show me another solar or wind farm."

"The market is at indigestion point," said one London-based banker. "There's only a certain amount that can get fed into the market at any one time.  Some investors look at their allocations and feel they have enough of the sector already – don't forget that at the moment, it's still very new. It's a case of gradual expansion of the market rather than doing it all in the first quarter of the year."

Five vehicles listed in 2013: Greencoat's UK Wind, which raised £260 million, followed by The Renewables Infrastructure Group (£300 million), Bluefield Solar (£130 million), Foresight (£150 million) and Terra Firma's Infinis, which sold 30% of its equity, valuing the company £780 million.

In 2014, infrastructure investment company John Laing said it hoped to raise at least £160 million for its Environmental Assets Group; NextEnergy Solar Fund said it planned to raise £150 million; and Ingenious Capital Management said it planned to raise £160 million.

"What there's saturation for, is for the listed market," said one listed equity specialist. "These three offerings look as if they are struggling a bit, that demand is starting to dry up and investors are looking for other things."

He said the reason was partly the strengthening economic environment, as central banks begin to consider unwinding stimulus measures, meaning interest rates will rise and the dividends from 'yieldcos' will no longer be in "the sweet spot".

Of the three planned IPOs, John Laing, which is expected to close its book on Tuesday, was seen as the most likely to succeed because of the strength of the brand of its parent company.

"The one that has the best chance is John Laing – they have a fan club among investors," added the banker. "If any get done, that one is the best bet."

However, the private equity boss cautioned that markets are unpredictable and the listings could still succeed.

"It's a more challenging environment than a few months ago," he said. "They may get away or they may not – the funny thing about listings is that you just don't know until the last minute."

Peter Cripps